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Proposed state constitutional amendment on defining nonprofits gets support of advocates

Justin Merriman | Tribune-Review
The UPMC logo on U.S. Steel Tower in Downtown Pittsburgh on June 28, 2011.

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5-point test

Under the Pennsylvania Supreme Court's 1985 five-point test, purely public charities must:

1. Advance a charitable purpose

2. Donate or render gratuitously a substantial portion of their services

3. Benefit a substantial and indefinite class of persons who are legitimate subjects of charity

4. Relieve the government of some of its burden

5. Operate entirely free from profit motive

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Tuesday, July 9, 2013, 12:01 a.m.

A bill to give the state Legislature the power to decide which nonprofits get tax-exempt status as purely public charities is moving forward quietly with support from nonprofit advocates even as Pittsburgh presses a court case challenging a hospital system's tax exemptions.

The proposal to amend the state constitution passed last week but must win legislative approval again in 2015 and win a voter referendum to become law.

E.J. Strassburger, the Downtown lawyer representing Pittsburgh in its challenge of UPMC's tax-exempt status, said such an amendment could kill the city's lawsuit.

“But I don't think, at least in the current environment, that there is a snowball's chance to get (the amendment) past the people,” Strassburger said. He said the public has become rightfully skeptical of multibillion-dollar nonprofit organizations that call themselves charities.

Spokesmen for UPMC did not respond to requests for comment. The hospital system, which is Western Pennsylvania's largest employer, countersued in federal court alleging the city “initiated a campaign to target and damage UPMC.”

The city claims UPMC's profits should force it to pay property taxes on hundreds of parcels and payroll taxes on 40,000 people who work for UPMC affiliates.

The bid to amend the constitution stems from a 2012 state Supreme Court ruling that denied a Pike County summer camp the charitable exemption. The court said the camp, which passed muster with state lawmakers, failed to meet a five-pronged test for purely public charities that the court outlined in 1985.

Jennifer Ross, chief information officer of the Pennsylvania Association of Nonprofit Organizations, said her group joined the Hospital and Healthsystem Association of Pennsylvania and 14 other groups seeking an amendment to give the Legislature the authority to write tax-exempt rules for charities.

She said many in the nonprofit community feared the court ruling spawned uncertainty and would open the door to more challenges of charitable tax exemptions by cash-strapped municipalities.

That's what happened in Warren County, said Jack Owen, a Pittsburgh lawyer who is representing a charity in Northwestern Pennsylvania that lost its exemption.

Owen said that last year, officials in Warren County revoked the tax-exempt status of several charities, including the local YMCA, Warren's 89-bed community hospital and nursing homes.

Owen, who declined to identify his client, said the charities are joining forces to press their appeals.

“This is the most aggressive I've seen the taxing authorities. Warren County is being particularly aggressive, and Allegheny County has sent out requests for every charity that owns real estate to reapply for tax-exempt status. I think the taxing authorities have become emboldened,” Owen said

Scott Leff, a senior consultant to the Bayer Center for Nonprofit Management at Robert Morris University in Moon, called the Warren County cases “stunning news” for the nonprofit community in Pennsylvania.

Senate President Pro Tempore Joe Scarnati, R-Jefferson County, who sponsored the bill to amend the constitution, said the Pike County decision replaces standards set in a 1997 state law on nonprofit exemptions and opened the door for costly court battles.

Senate Minority leader Jay Costa, D-Forest Hills, who voted against Scarnati's bill, said he would support such an amendment if lawmakers would agree to overhaul how the state defines purely public charities.

“There's no question that folks are very concerned about entities that profess to be public charities, and folks are calling into question whether they actually are charities,” Costa said.

Costa and Sen. Jim Ferlo, D-Highland Park, said lawmakers need to reconsider the definition of public charities because expanding nonprofits that require public services are threatening the property tax base in many communities.

“In my opinion, there are many large nonprofits that should pay some kind of tax or some payment in lieu of taxes,” Ferlo said.

Debra Erdley is a staff writer for Trib Total Media. She can be reached at 412-320-7996 or

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